Youdao, Inc.

Good day and welcome to the YoDAO 2020 fourth quarter and full year earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wong, investor relations director of YoDAO. Please go ahead.

Thank you, operator. Please note that discussion today will contain forward-looking statements related to future performance of the company. which are intended to qualify for the safe harbor from liability as established by the U.S. Private Security Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to the certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and these discussions. A general discussion of these risk factors that could affect use of business and financial results is included in certain filings of companies with the Securities and Exchange Commission, including our annual report filed on Form 20F. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial matters for comparison purposes only. For the definitions of non-GAAP financial measures and recalculations of GAAP to non-GAAP financial results, please see the 2020 fourth quarter and full year financial results with news released issued early today. As a reminder, the conference is being recorded. Besides, a webcast replay of this conference call will be available on UDOT's corporate website at ir.udot.com. Joining us today on the call from UDOT's senior management is Dr. Feng Zhou, our chief executive officer, Mr. Lei Jin, VP of operations, Mr. Peng Su, our VP of strategy and capital markets, and Mr. Wayne Lee, our VP of Finance. I will now turn the call over to Dr. Joe to review some of our recent highlights and strategic directions.

Thank you, Jeffrey, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are based on your name. The importance of online education has never been as evident as it was in 2020. 2020 was a banner year for your dollars. Let me start by going over financial and operational highlights across our business. Total gross billings from our online courses reached RMB 1.1 billion in Q4 and RMB 3.1 billion in 2020, up to 22% and 33% year-over-year, respectively. Accordingly, the total revenue achieved was RMB 1.1 billion, in Q4 2020 and RMB 3.2 billion in 2024 year, up 169% and 142% respectively on a year-on-year basis. Paid student enrollments from K-12 reached 659,000 in Q4 2020 and 1.64 million in 2020, up 309% and 357% respectively. on a year-over-year basis. Overall gross margin reached 47.5% in Q4 2020, up over 17% year-over-year. We achieved positive operating cash flow of RMB 129 million in Q4 2020, marking our third quarter of positive operating cash flow in 2020. Our operating cash outflow for 2020 narrowed to RMB 322 million compared with RMB 372 million in 2019. It means more than tripled of gross billings with the RMB 50 million decrease in cash outflow. Quality of our courses and products also got more recognition in the industry. Four of our courses were recently granted 5A rating for online education service issued by China Quality Certification Center. We raised approximately US dollar 232 million of net proceeds through a follow-on offering in February 2021. In addition, the board of directors of both NetEase and our company have recently approved a proposed revolving loan facility to be extended by NetEase to us with a total commitment of 300 million US dollars to support our long-term growth. Let me now turn to the progress of our business operations. Firstly, strengthening our instructor team continues to be a focus for us because this drives the improvement of cost quality. During the fourth quarter, we added another 42 instructors with a total reaching 214. At the end of December 2020, we also had a total of 3,786 highly trained tutors to support our continued growth. For senior high school segments, we recruited 13 instructors and incubated three senior instructors in Q4. With our customized tiered instruction service, we now can meet diversified needs of students of different learning levels. We've also improved our assessment process of students to better match students with courses that have the appropriate difficulty level. Secondly, our junior high school teams continue to work on localized instruction, as we mentioned in Q3. We have launched localized versions of our Chinese courses covering over 30 different locations. Students have started to enroll in these courses to be offered in upcoming spring semester. We will also offer localized test preparation updates and analysis on senior high school entrance exams. Thirdly, we continue to upgrade our interactive features. For example, we introduced a feature called Interactive Voice Answer for primary school courses in this quarter, which simultaneously converted many students' voice answers to text, so the instructor can quickly identify valuable answers. Features like these effectively improve the quality of interaction during our large classes. With these and other advancements in place, we saw significant improvement in retention for our K-12 courses during Q4. Taking junior high school Chinese courses as an example, the retention rate approached 70%. Overall paid enrollments for our Chinese courses for all grades rose nearly four times year over year. For the primary school segment, I'd like to highlight one extracurricular course, You Dao Wei Qi or You Dao Zhong Heng. The course is a beginning online course for Wei Qi or the game of Go. It is a fun course with live video instructions, colorful animations, and also AI-powered practice. Leveraging our new AI capabilities, students can practice their goal game skills adaptively with various level of difficulty with the AI. And we generate learning reports automatically for parents and kids. Yodowitch is a hit product and is growing very rapidly. the retention rate for this course was above 70% in Q4. We have prepared a short video about the product, and it is available on our investors' website, ir.yodao.com, for your convenience. Turning to our courses for adult learners, in addition to existing courses like Logic English, we have a fast-growing new course, Extraordinary Memory, 非常记忆. The course helps learners gain new techniques for better memorization and improve concentration while learning. The approach is effective for learners of different ages and backgrounds and help them become more productive in studying of different subjects. The compound quarterly growth rates for growth billing of this course is about 90% in 2020. I'd like to pause and talk a little about our strategy. Our current product strategy has two sides. One, we are implementing the interactive large-class model we talked about a few quarters back, and building more and more live interactions, some of them AI-powered, into our courses. The voice-answer interaction I just talked about is a good example among many other of these features. Second part of our product strategy is that we focus on a small set of star courses, or we call blockbusters internally, instead of evenly distributing our investments on all subjects and age groups. For example, the Chinese course makes up a large portion of our junior high school business. By focusing on a few courses that are really innovative and solve students' and parents' vital needs, we attract more satisfied and loyal customers and gain better economics for our business. This twofold strategy of interactive and focused courses has driven our quick growth in 2020 and will continue to propel us forward. It fits us because fundamentally, it requires a diverse set of skills our teams have, including technology design, AI technology, and deep user research. and maybe more importantly, the NetEase and Udall culture of patience and collaboration. Turning to our learning products segment, we continue to ramp up our R&D of smart learning devices, investing in hardware technology, AI capability, and learning concepts. We launched the Udall Dictionary Pen 3 in December. It builds on top of the successful business of Udall Dictionary Pen 2, by adding unique features like tap and check, and interactive reading, that allows even faster word lookups and helps young learners read English readers like picture books. We're so happy to see hundreds of primary, secondary, and high schools, as well as universities from more than 25 provinces and municipalities across China have adopted the UW dictionary pen as a valuable learning tool. We have a strong learning device pipeline ahead of us, and we cannot wait to show them to our customers. As we close our books on a football 2020, our teams are more excited than ever about our journey in 2021. As an intelligent learning company, we are committed to deliver great learning content, exciting AI technology, and high quality service. We work tirelessly to capture the growth opportunity of this secular online learning adoption. As we achieve more scale, a natural byproduct will be profitability. We are on the right path to achieve our goals, and we invite you to join us on this journey. Thank you for your time and continued support as we work to bring curious Chinese minds to our intelligent learning vision. With our overview, I will now turn the call over to Supong to review our financial results. We will then open to questions. Supong.